September 14, 2005

September 14, 2005 | WebMemo on Trade, Economic Freedom

A Back-Door Threat to Free Trade

Congress is tackling several significant and high-profile issues this month-such as how to best rebuild after Hurricane Katrina and the appointment of John Roberts to the Supreme Court-but one significant issue has fallen below the radar: whether America will continue to advance the cause of free trade and reap its benefits. Having failed to defeat extension of the President's Trade Promotion Authority, continued U.S. membership in the World Trade Organization (WTO), and ratification of the Central American Free Trade Agreement, trade protectionists in Congress are now attempting a back-door approach to undermine U.S. trade policy. Nestled in the Fiscal Year 2006 Commerce, Justice, Science Appropriations Bill (H.R. 2862) is Amendment 1665, a short piece of legislation that would deny the Office of the United States Trade Representative the ability to use its budget to do its job. If enacted, the amendment could result in the failure of the WTO's Doha Round of negotiations-to the great detriment of American businesses and consumers.

Amendment 1665 would prevent the U.S. Trade Representative (USTR) from using funds appropriated in the bill to negotiate or enter into any trade agreement that changes any law of the United States that concerns national security import restrictions or remedies to U.S. firms harmed by the alleged unfair trade practices of foreign competitors.

That last restriction is the most problematic. Many of America's trade partners consider U.S. trade remedy laws to be unfair barriers to trade. Consequently, the U.S. agreed to negotiate its anti-dumping and countervailing duty laws when the Doha Round of world trade talks was launched in 2001. These negotiations are largely conducted by the USTR and are set to conclude in the upcoming December 2005 WTO ministerial meeting in Hong Kong.

The December WTO meeting will focus on issues that are crucial to advancing U.S. economic interests in the global economy. In exchange for opening discussions over its trade remedy laws, the U.S. has been able to push for negotiations on such issues as leveling the playing field for U.S. farmers through liberalized agriculture markets, systematically reducing tariff rates, strengthening intellectual property rights protection, streamlining customs procedures, and gaining access to new markets for U.S. goods and services. These issues concern some of the most difficult obstacles to free trade because they require other countries to dismantle policies that protect their most sensitive industries and most entrenched special interest groups.

As contentious as these issues are, freeing trade in these areas will stimulate economic growth and bring better jobs and improved living standards to millions of Americans. The Heritage Foundation's Index of Economic Freedom clearly shows that countries implementing freer trade policies experience higher per capita GDP growth than countries that cut themselves off from global trade.

Recognizing the benefits of more open trade, the United States has been a leading proponent of trade liberalization since formal global trade discussions began in the aftermath of World War II. And we have gained much. Gary Clyde Hufbauer of the Institute for International Economics estimates that trade liberalization over the last 50 years has brought an additional $10,000 per year to the typical American household.

If all trade barriers were eliminated and global trade and investment became truly free, American households would gain an additional $5,000 per year, Hufbauer estimates. And if today's international trade barriers were reduced by just a third, the average American family of four would enjoy $2,500 per year in additional income, according to a University of Michigan study. As well, freer trade helps more than just Americans. The poorest countries stand to gain considerably. According to a Center for Global Development study, a successful conclusion to the Doha Round would result in an additional $200 billion flowing to developing nations, reducing poverty and economic hardship.

If Amendment 1665 were approved, these abundant gains from trade liberalization would likely be lost to American consumers, American business, and the rest of the world. The amendment's direct outcome would be the potential failure of the Doha Round trade negotiations due to stalemate. U.S. trade negotiators would be barred from the bargaining table, prevented from even discussing potential changes in the way America regulates foreign competition. Without the possibility of concessions on sensitive policies, other countries would not offer any additional openings for U.S. goods and services.

There is nothing wrong with debating the fairness of U.S. trade remedy laws. Public debate can help to guide policymakers in evaluating how the U.S. engages in international trade. Given the U.S. penchant for demanding fair trade practices from other nations, a healthy debate about U.S. trade laws could go a long way to strengthen America's legitimacy as a leader in promoting free trade.

As things now exist, U.S. trade negotiators cannot change America's trade laws without Congress's approval. Their primary job is to reduce trade barriers through negotiations with other countries and thereby open doors for U.S. exports. These negotiations cannot succeed if other parties cannot walk away with something to match their own concessions. Once negotiations conclude, Congress, the Administration, and other interested parties can openly debate the merit of the USTR's effort. Under Amendment 1665, however, that debate would never happen. Congress should allow the USTR to use its budget most effectively to accomplish its mission.

Daniella Markheim is a Senior Policy Analyst in the Center for International Trade and Economics at The Heritage Foundation.

About the Author

Daniella Markheim Jay Van Andel Senior Analyst in Trade Policy
Center for Trade and Economics (CTE)